Tech firms duck taxes

Jeremy Mehrle, a collector of Macintosh and other Apple computers, poses for a photo behind a bar of classic products. Apple reported $40.4 billion in holdings overseas and had an effective global tax rate of 12.6 percent over the past three years. (AP File Photo/Jeff Roberson)

Jeremy Mehrle, a collector of Macintosh and other Apple computers, poses for a photo behind a bar of classic products. Apple reported $40.4 billion in holdings overseas and had an effective global tax rate of 12.6 percent over the past three years. (AP File Photo/Jeff Roberson)

Story by

Matt Drange, Center for Investigative Reporting

The largest tech companies in the Bay Area have avoided paying federal taxes on more than $225 billion they have accumulated through foreign subsidiaries, documents filed with the Securities and Exchange Commission show.

By sheltering their assets overseas, Silicon Valley companies such as Apple, Google, eBay and Hewlett-Packard are able to reduce their annual taxes in some cases by billions of dollars, according to a Center for Investigative Reporting analysis of the 50 largest firms’ financial statements filed in 2012.

Widespread tax avoidance by some of California’s most prominent companies has contributed to federal revenue shortfalls as President Barack Obama and Congress consider whether to cut government programs. Some lawmakers say the tax code disproportionately favors powerful companies at the expense of other taxpayers.

“What it demonstrates is that tech firms in particular have very low worldwide rates, and their demands for a more competitive U.S. tax system ring hollow,” said Edward Kleinbard, a tax law professor at the University of Southern California and former chief of staff for the congressional Joint Committee on Taxation. “In fact, the U.S. tax system subsidizes them, and a more neutral tax system would require tech firms to pay substantially more taxes.”

The U.S. tax code allows companies to reduce their tax burden by accumulating assets overseas, and some of the biggest names in the tech industry have perfected the tactic. Instead of paying the top U.S. corporate tax rate of 35 percent, dozens of Silicon Valley giants maintain global tax rates below 15 percent, the Center for Investigative Reporting’s review of annual financial statements found.

Among the 50 firms, 47 reported having assets overseas that were “permanently reinvested,” a designation that allows them to avoid recording the money as taxable U.S. income, thereby deferring payment of federal and state taxes indefinitely. Many companies designate their holdings overseas even though much of the money is invested in the United States.

Five companies – Cisco Systems, Apple, Hewlett-Packard, Google and Oracle – accounted for more than two-thirds of the $225 billion in accumulated foreign earnings as of Dec. 31, 2012.

Tech companies that relied on foreign income to reduce their taxes include:

• Apple, which reported $40.4 billion in holdings overseas and had an effective global tax rate of 12.6 percent over the past three years

• eBay, which reported $10 billion overseas and had an effective tax rate of 15.3 percent over the past three years

• Google, which reported $24.8 billion overseas and had an effective tax rate of 17.6 percent over the past three years

• Yahoo, which reported $3.2 billion overseas and had an effective tax rate of 17.9 percent over the past three years

• Cisco, which reported $41.3 billion overseas and had an effective tax rate of 20.9 percent over the past three years

The companies declined to comment on their offshore holdings or the amount of taxes they paid. The effective tax rate is based on the Center for Investigative Reporting’s calculation using the firm’s publicly available information; companies are not required to make public how much they paid the Internal Revenue Service.